Section 45R – 2015 Guidance with Respect to the Tax Credit for Employee Health Insurance Expenses of Certain Small Employers

Section 45R – 2015 Guidance with Respect to the Tax Credit for Employee Health

Insurance Expenses of Certain Small Employers

Notice 2015-08

I. PURPOSE

This notice provides guidance on section 45R of the Internal Revenue Code

(Code) for certain small employers that cannot offer a qualified health plan (QHP)

through the Small Business Health Options Program (SHOP) Exchange because the

employer’s principal business address is in a county in Iowa in which a QHP through a

SHOP Exchange will not be available for all or part of 2015 calendar year. Section IV of

this notice includes a list of those counties. With respect to those employers in Iowa,

this notice provides guidance on how to satisfy the requirements for the section 45R

credit for coverage provided during the 2015 calendar year and the portion of a health

plan year beginning in 2015, if any, that continues into 2016. (See Notice 2014-6, 2014

I.R.B. 279, for guidance on counties in other states in which a QHP through a SHOP

Exchange might not be available during 2014.)

II. BACKGROUND

Section 45R was added to the Code by section 1421 of the Patient Protection

and Affordable Care Act, enacted March 23, 2010, Pub. L. No. 111-148. Section 45R

offers a tax credit to certain small employers that provide health insurance coverage to

their employees (eligible small employers). The credit generally is available for taxable

years beginning after December 31, 2009. For taxable years beginning after December

31, 2013, the credit is available only with respect to premiums paid by a small employer

for a QHP offered by the employer to its employees through a SHOP Exchange, and is

available only for a period of two consecutive taxable years. Additionally, for taxable

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years beginning after December 31, 2013, the maximum credit rate is increased to 50

percent from 35 percent for eligible small employers (and to 35 percent from 25 percent

for tax-exempt eligible small employers)

ployer

for a QHP offered by the employer to its employees through a SHOP Exchange, and is

available only for a period of two consecutive taxable years. Additionally, for taxable

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years beginning after December 31, 2013, the maximum credit rate is increased to 50

percent from 35 percent for eligible small employers (and to 35 percent from 25 percent

for tax-exempt eligible small employers). An eligible small employer may claim the

credit by filing an income tax return and attaching Form 8941, “Credit for Small

Employer Health Insurance Premiums” (or in the case of tax-exempt eligible small

employers, filing Form990-T,“Exempt Organization Business Income Tax Return,” and

attaching Form 8941).

The Treasury Department and the IRS issued final regulations under section 45R

on June 30, 2014 (79 FR 36640). The regulations provide guidance on determining

eligibility for the credit and calculating and claiming the credit.

The Treasury Department and the IRS have been advised by the Department of

Health and Human Services (HHS) that for calendar year 2015 the SHOP Exchanges

in Iowa will not have QHPs available in certain counties for employers to offer to their

employees. Under HHS regulations governing employer eligibility for SHOP Exchanges,

an employer may either (1) offer coverage to all of its eligible full-time employees

through the SHOP whose service area includes the employer’s principal business

address, or (2) offer coverage to each eligible full-time employee through the SHOP

whose service area includes that employee’s primary worksite. 45 CFR 155.710(b)(3).

Under either approach, an employer may offer SHOP coverage to employees whose

primary worksite is at its principal business address only if that address is located within

the service area of the SHOP

ployer’s principal business

address, or (2) offer coverage to each eligible full-time employee through the SHOP

whose service area includes that employee’s primary worksite. 45 CFR 155.710(b)(3).

Under either approach, an employer may offer SHOP coverage to employees whose

primary worksite is at its principal business address only if that address is located within

the service area of the SHOP. As a result, absent the relief provided in this notice, an

otherwise eligible small employer with its principal business address in a county without

any QHPs available would be denied the opportunity to claim the section 45R credit for

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2015. To provide these otherwise eligible small employers an opportunity to claim the

section 45R credit for 2015, this notice provides relief for those employers for the plan

year of the employer’s group health plan beginning in 2015, including any portion of that

plan year that continues into 2016, with respect to employees whose primary worksite is

at the employer’s principal business address.

On December 17, 2013, the Treasury Department and the IRS issued Notice

2014-6, 2014-2 I.R.B. 279, which provided transition relief for employers in certain

counties in Washington and Wisconsin with no SHOP coverage available in 2014. The

Treasury Department and the IRS have determined that similar relief, described in

section III of this notice, is appropriate for employers in certain counties in Iowa with no

SHOP coverage available in 2015. Nothing in this notice is intended to modify or

otherwise affect the relief provided in Notice 2014-6.

III. 2015 RELIEF

An eligible small employer with a principal business address in one of the

counties listed in section IV below may calculate the credit under section 45R by

treating health insurance coverage provided for the 2015 health plan year as qualifying

for the section 45R credit, provided that that the coverage would have qualified for a

credit under section 45R under the rules applicable before January 1, 2014

e small employer with a principal business address in one of the

counties listed in section IV below may calculate the credit under section 45R by

treating health insurance coverage provided for the 2015 health plan year as qualifying

for the section 45R credit, provided that that the coverage would have qualified for a

credit under section 45R under the rules applicable before January 1, 2014. This

treatment applies with respect to the coverage provided during the 2015 calendar year

and during any portion of a health plan year beginning in 2015 that continues into 2016.

If the eligible small employer claims the section 45R credit for the 2015 taxable year,

then the credit will be calculated at the 50 percent rate (35 percent for tax-exempt

eligible small employers) for the entire 2015 taxable year. If the eligible small employer

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first claims the section 45R credit for the 2015 taxable year, the 2015 taxable year will

be the first year of the two-consecutive-taxable year credit period. If the eligible small

employer first claims the section 45R credit for the 2014 taxable year, then the 2015

taxable year will be the second year of the two-consecutive-taxable year credit period,

regardless of whether the eligible small employer takes advantage of the relief in this

notice regarding the credit for coverage provided under the rules applicable before

January 1, 2014.

The relief in this notice is illustrated by the following examples. The examples

assume that the employer is an eligible small employer that is not a tax-exempt

employer, and that its principal business address is in a county listed in this notice.

Example 1. (i) Facts. Employer does not claim the credit for coverage provided

for its 2014 taxable year. Employer has a 2015 health plan year and a 2015 taxable

year that both begin January 1, 2015, and end December 31, 2015

assume that the employer is an eligible small employer that is not a tax-exempt

employer, and that its principal business address is in a county listed in this notice.

Example 1. (i) Facts. Employer does not claim the credit for coverage provided

for its 2014 taxable year. Employer has a 2015 health plan year and a 2015 taxable

year that both begin January 1, 2015, and end December 31, 2015. Employer provides

health insurance coverage from January 1, 2015, through December 31, 2015, that

would have qualified Employer for a credit under section 45R under the rules applicable

to taxable years beginning before January 1, 2014.

(ii) Conclusion. Employer may claim the credit at the 50 percent rate under

section 45R for coverage provided for the entire 2015 taxable year. If Employer claims

the credit for coverage provided for the 2015 taxable year, the 2015 taxable year is the

first year of its two-consecutive-taxable year credit period.

Example 2. (i) Facts. Employer does not claim the credit for coverage provided

for its 2014 taxable year. Employer has a 2015 taxable year that begins January 1,

2015, and ends December 31, 2015, and a 2015 health plan year that begins April 1,

2015, and ends March 31, 2016. From April 1, 2015 through December 31, 2015 (the

initial months of its plan year that begins April 1, 2015) and from January 1, 2016

through March 31, 2016, Employer provides coverage that would have qualified

Employer for a credit under section 45R under the rules applicable to taxable years

beginning before January 1, 2014.

th plan year that begins April 1,

2015, and ends March 31, 2016. From April 1, 2015 through December 31, 2015 (the

initial months of its plan year that begins April 1, 2015) and from January 1, 2016

through March 31, 2016, Employer provides coverage that would have qualified

Employer for a credit under section 45R under the rules applicable to taxable years

beginning before January 1, 2014.

(ii) Conclusion. Employer may claim the credit at the 50 percent rate under

section 45R for coverage provided from April 1, 2015 through December 31, 2015.

Employer may also claim the credit under section 45R for coverage provided for its

2016 taxable year from January 1, 2016 through March 31, 2016 (in addition to any

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credit under section 45R for which Employer is eligible based on coverage provided

from April 1 through December 31 of the 2016 taxable year).

Example 3. (i) Facts. Employer has a 2015 taxable year that begins January 1,

2015 and ends December 31, 2015, and a 2015 health plan year that begins May 1,

2015 and ends April 30, 2016. Employer provided coverage through a SHOP plan for

2014 and qualifies for, and claims, the credit for 2014. In 2015, Employer provides

coverage through a SHOP plan for January 2015. Beginning February 1 and through

April 30, 2015, Employer provides coverage with a policy for the remainder of the plan

year that would have qualified Employer for a credit under section 45R under the rules

applicable to taxable years beginning before January 1, 2014. From May 1, 2015,

through December 31, 2015 (the initial months of its plan year that begins May 1, 2015),

and from January 1, 2016, through April 30, 2016, Employer provides coverage that

would have qualified Employer for a credit under section 45R under the rules applicable

to taxable years beginning before January 1, 2014.

les

applicable to taxable years beginning before January 1, 2014. From May 1, 2015,

through December 31, 2015 (the initial months of its plan year that begins May 1, 2015),

and from January 1, 2016, through April 30, 2016, Employer provides coverage that

would have qualified Employer for a credit under section 45R under the rules applicable

to taxable years beginning before January 1, 2014.

(ii) Conclusion. Employer may claim the credit at the 50 percent rate under

section 45R for coverage provided from January 1, 2015, through December 31, 2015.

Employer may not claim the credit under section 45R for coverage provided for its 2016

taxable year because its two-consecutive-taxable year period ends with 2015.

IV. LIST OF IOWA COUNTIES

Adair, Adams, Appanoose, Audubon, Benton, Black Hawk, Boone, Bremer,

Buchanan, Buena Vista, Butler, Calhoun, Carroll, Cass, Cedar, Cerro Gordo, Cherokee,

Chickasaw, Clarke, Clinton, Crawford, Dallas, Davis, Decatur, Delaware, Des Moines,

Dubuque, Floyd, Franklin, Fremont, Greene, Grundy, Guthrie, Hamilton, Hancock,

Hardin, Harrison, Henry, Humboldt, Iowa, Jackson, Jasper, Jefferson, Johnson, Jones,

Keokuk, Kossuth, Lee, Linn, Louisa, Lucas, Madison, Mahaska, Marion, Marshall, Mills,

Mitchell, Monona, Monroe, Montgomery, Muscatine, Page, Palo Alto, Pocahontas, Polk,

Pottawattamie, Poweshiek, Ringgold, Sac, Scott, Shelby, Story, Tama, Taylor, Union,

Van Buren, Wapello, Warren, Washington, Wayne, Webster, Winnebago, Worth,

Wright.

V. EFFECTIVE DATE

This notice is effective as of [INSERT DATE OF RELEASE] and applies to

periods after December 31, 2014.

DRAFTING INFORMATION

The principal author of this notice is Stephanie Caden of the Office of Division

Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further

information regarding this notice contact Stephanie Caden at (202) 317-5500 (not a toll-

free call).